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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended June 30, 1999.
Commission file number: 33-89384-LA
PROLOGIC MANAGEMENT SYSTEMS, INC.
(Name of small business issuer in its charter)
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<S> <C>
Arizona 86-0498857
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2030 East Speedway Blvd., Tucson, Arizona 85719
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number (520) 320-1000.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock and Warrants to Purchase Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding on June 30, 1999 was 4,741,349.
Transitional Small Business Disclosure Format:
Yes / / ; No /X/.
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Prologic Management Systems, Inc.
Index
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<CAPTION>
Page
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Part I. FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999
and March 31, 1999 3
Condensed Consolidated Statements of Operations
for the Three Months Ended June 30, 1999 and June 30, 1998 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 1999 and June 30, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
Part II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote by Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit 11.1
Exhibit 27
Exhibit 10.17
SIGNATURES
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
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<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
------------- --------------
Assets (unaudited)
Current assets:
<S> <C> <C>
Cash $ 304,112 $ 128,162
Restricted cash 300,000 300,000
Accounts receivable,less allowance for doubtful accounts of
$245,688 at March 31, 1999 and June 30, 1999 5,895,081 2,628,176
Inventory 98,335 516,937
Prepaid expense 119,125 4,265
------------ ------------
Total current assets 6,716,653 3,577,540
Property and equipment, net 495,554 492,001
Goodwill, net 967,037 1,028,162
Other assets 33,024 83,420
------------ ------------
Total assets $ 8,212,269 $ 5,181,123
============ ============
Liabilities and Stockholders' Deficit
Current liabilities
Short term debt and notes payable $ 389,868 $ 349,136
Notes payable - related parties 100,400 100,400
Accounts payable 5,639,383 3,572,170
Accrued expenses 891,276 733,950
Deferred revenue 128,566 120,891
------------ ------------
Total current liabilities 7,149,494 4,876,547
Long term debt and notes payable 459,784 533,217
Line of credit 2,172,045 1,234,256
Stockholders' Deficit
Series A cumulative convertible preferred stock, no par value,
750,000 shares authorized, 16,667 shares issued and outstanding 100,000 100,000
Series B cumulative convertible preferred stock, no par value,
100,000 shares authorized, 72,000 shares issued and
outstanding 519,883 519,883
Common stock, no par value, 10,000,000 shares authorized,
4,741,349 shares issued and outstanding 8,700,137 8,692,637
Warrants 694,230 694,230
Accumulated deficit (11,583,303) (11,469,647)
------------ ------------
Total stockholders' deficit (1,569,053) (1,462,897)
------------ ------------
Total liabilities and stockholders' deficit $ 8,212,269 $ 5,181,123
============ ============
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See accompanying notes to condensed consolidated financial statements.
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PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
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(unaudited) (unaudited)
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Net Sales
Hardware $ 6,313,701 $ 3,332,919
Licenses 1,207,803 453,449
Services 673,003 1,584,075
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8,194,508 5,370,443
Cost of Sales 6,646,080 3,958,387
Gross Profit 1,548,427 1,412,055
Operating Expenses
Selling and marketing 327,736 338,617
General and administrative 1,219,750 1,200,968
Research and development 0 51,750
----------- -----------
Total Operating Expenses 1,592,485 1,591,336
Operating Loss (44,058) (179,280)
Interest Expense (69,847) (80,845)
Other income (expense) 250 (14,482)
----------- -----------
Net loss (113,655) (274,608)
Cumulative Preferred Stock Dividend (20,222) (47,934)
----------- -----------
Net loss available to common stockholders $ (133,877) $ (322,542)
=========== ===========
Loss per common share
Basic and Diluted (0.03) (0.07)
Weighted average shares of common stock
Basic and Diluted 4,721,349 4,492,024
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
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(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (113,655) $ (322,542)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 105,670 111,594
Issuance of warrants 56,477
Changes in:
Trade accounts receivable (3,266,905) (709,440)
Accounts payable and accrued expenses 2,224,539 1,531,210
Other assets and liabilities (361,813) (264,855)
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Total adjustments (574,883) 724,986
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Net cash from (used in) operating
activities (688,537) 402,444
----------- -----------
Cash flows from investing activities
Purchase of equipment (48,081) (67,087)
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Net cash used in investing activities (48,081) (67,087)
Cash flows from financing activities:
Issuance of Debt - Line of Credit 937,789
Issuance of common stock 7,500 17,500
Repayment of debt (32,720) (507,083)
----------- -----------
Net cash provided by (used in) financing
activities 912,569 (489,583)
Net cash increase (decrease) in cash and cash equivalents 175,950 (154,226)
Cash and cash equivalents, beginning of period 128,162 175,110
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Cash and cash equivalents, end of period $ 304,112 $ 20,884
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Periods
The accompanying condensed consolidated financial statements include
the accounts of Prologic Management Systems, Inc. (the "Company") and
its wholly-owned subsidiaries, Great River Systems, Inc. ("GRSI"), and
BASIS, Inc ("BASIS"). All significant inter-company balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying condensed consolidated financial statements include all
adjustments (of a normal recurring nature) which are necessary for a
fair presentation of the results for the interim periods presented.
Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to such
rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not
misleading, these financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Company's Report on Form 10-KSB for the fiscal year
ended March 31, 1999. The results of operations for the three months
ended June 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
2. Lines of Credit
In March 1998, BASIS and GRSI obtained a line of credit in an amount
that is the lower of $5,000,000 or the sum of 85% of eligible accounts
receivable, restricted cash (see Note 2) and equipment loans in the
first year (maximum equipment loan is $250,000). This line of credit is
secured by substantially all of BASIS and GRSI's assets. As of June 30,
1999, borrowings under this line of credit were $2,172,045.
The line of credit bears monthly interest at the highest prime rate in
effect during each month (7.75% during March 1999) plus 1.75% per annum
for the portion of the loan related to accounts receivable and prime
plus 2.25% per annum for the portion related to equipment purchases
subject to a minimum charge in any month of not less than 9% per annum.
Interest is based on a minimum daily loan balance of $1,000,000. The
line matures on March 31, 2001.
The Company is required to pay a monthly minimum fee of $1,500. Also,
the Company paid an initial loan fee of $50,000 in March 1998 with an
additional loan fee based on .25% of the maximum dollar amount
($5,000,000) due annually thereafter. In years four and beyond, the
Company must pay a renewal fee of .5% of the maximum dollar amount.
If the Company terminates this agreement prior to the maturity date, it
must pay a penalty equal to the greater of all interest due during the
prior six months or the minimum monthly interest multiplied by the
number of partial or full months from the effective termination to the
maturity date.
The line of credit agreement requires that BASIS and GRSI maintain a
combined minimum net worth of $750,000. At June 30, 1999, BASIS and &
GRSI were in compliance with this covenant.
3. Goodwill
Cost in excess of net assets acquired (goodwill) is being amortized on
a straight-line basis over seven years. Amortization expense for the
quarter ended June 30, 1999 totaled $61,125. Accumulated amortization
totaled $751,595 at June 30, 1999.
In September 1995, the Company completed the acquisition of GRSI, a
systems integration company based in St. Paul, Minnesota. All of the
outstanding common stock of GRSI was acquired for 100,000 shares of
common stock of the Company valued at $40,000, the issuance of a
promissory note in the amount of $150,000 and $100,000 of cash. The
acquisition was accounted for as a purchase and
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accordingly, the aggregate purchase of $290,000 was allocated to the
assets acquired and liabilities assumed based on their estimated fair
values at the date of acquisition. Cost in excess of net assets
acquired of $259,746 was recorded as goodwill in connection with the
acquisition.
In August 1996, the Company completed the acquisition of BASIS, a
systems integration company located in the San Francisco Bay Area. All
of the outstanding stock of BASIS was acquired for 337,325 shares of
common stock of the Company valued at $1,400,000 and $500,000 in cash.
The acquisition was accounted for as a purchase and accordingly the
aggregate purchase price of $2,231,533 was allocated to the assets
acquired and the liabilities assumed based on their estimated fair
values at the date of the acquisition. Cost in excess of net assets
acquired of $1,459,661 was recorded as goodwill in connection with the
acquisition.
4. Property and Equipment
Property and equipment as of June 30, 1999, consists of the following:
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June 30, 1999 March 31, 1999
<S> <C> <C>
Furniture and leasehold improvements $ 303,883 $ 350,027
Equipment and software 1,281,459 1,187,634
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1,585,342 1,537,661
Less accumulated depreciation (1,089,788) (1,045,660)
----------- -----------
Net property and equipment $ 495,554 $ 492,001
=========== ===========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
Consolidated Financial Statements as filed in the Company's annual report Form
10-KSB. Except for the historical information contained herein, the matters
discussed in this 10-QSB are forward-looking statements that involve a number of
risks and uncertainties. There are certain important factors and risks,
including the rapid change in hardware and software technology, market
conditions, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments,
seasonality in the buying cycles of certain of the Company's customers, the
timing of product announcements by the Company and by companies whose products
are sold by the Company under reseller agreements, the release of new or
enhanced products, the introduction of competitive products and services by
existing or new competitors and the significant risks associated with the
acquisition of new products, product rights, technologies, businesses, the
management of growth, the Company's ability to attract and retain highly skilled
technical, managerial and sales and marketing personnel, and the other risks
detailed from time to time in the Company's SEC reports, including reports on
Form 10-KSB and Form 10-QSB, that could cause results to differ materially from
those anticipated by the statements made herein. Therefore, historical results
and percentage relationships will not necessarily be indicative of the operating
results of any future period.
INTRODUCTION
The Company provides systems integration services, networking services,
software development and applications software for the commercial market. The
Company's professional services include consulting, systems integration,
software development, maintenance, training and the installation of hardware on
which to implement the Company's as well as third-party software products. The
Company's proprietary applications software is primarily licensed for use to
manufacturers and for use in the wholesale distribution industry. For additional
information on the combined operating results of the Company and its
subsidiaries, see the Consolidated Financial Statements of the Company and Notes
thereto. The discussion should be read in conjunction with and is qualified in
its entirety by the Consolidated Financial Statements of the Company and Notes
thereto.
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RESULTS OF OPERATIONS
Net Sales. Net sales for the first quarter of fiscal 2000 were
$8,194,508 compared to the net sales of $5,370,443 for the first quarter of
fiscal 1999, an increase of $2,824,065 or 52.6%. The sales increase was the
result of a significant increase in sales of third party hardware and software
licenses offset somewhat by a decrease in the sale of integration services.
Sales of third party hardware for the period were $6,313,701 an increase of
approximately 89.4% over sales for the same period one year ago of $3,332,919.
Sales of software licenses, which included third party licenses as well as
proprietary software, were $1,207,803 for the period reflecting an increase of
$754,354 over sales of $453,449 for the first quarter of the previous fiscal
year. Service sales decreased by 57.5% , dropping from $1,584,075 to $673,003.
The increased hardware sales were the result of the restaffing and
reorganization of the sales staff at Basis, which began during the fourth
quarter of the previous fiscal year and continued into the first quarter of the
current fiscal year. The new sales staff initially concentrated on sales of
hardware and software, which historically leads to service requirements over
time.
Cost of Sales. Cost of sales was approximately $6,646,080, or 81.1% of
total net sales, for the period ended June 30, 1999 versus approximately
$3,958,387, or 73.7% of net sales, for the same period of the previous year. The
increased total cost was due to the increased total sales as well as the change
in sales mix as third party products, which carry a high cost, increased as a
percentage of total net sales. Higher cost third party hardware sales increased
as a percentage of total net sales, increasing from 62.1% of net sales for the
first quarter of last year to 77.0% for the current fiscal year, while service
sales, which historically carry a much lower cost of sales, decreased from 29.5%
of total net sales to 8.2%. The Company expects to continue to see the margins
of sales of third party products to decrease, the result of continued
competition and pricing pressure in the computer market. The Company plans to
offset the increased cost by increasing the sales of higher margin services
related to the sale of third party hardware and software.
Selling and Marketing. Selling and marketing expenses were $372,736 or
4.5% of net sales, for the three month period ended June 30, 1999, compared to
$338,617, or 6.3% of net sales, for the same period of the previous fiscal year.
The increase in selling and marketing expenses is due to the restaffing and
reorganization of the sales staff at the Basis subsidiary. The Company expects
selling and marketing expenses to continue to increase as sales continue to
grow.
General and Administrative. General and administrative expenses
increased from $1,200,968, or 22.4% of net sales, for the first quarter of the
previous fiscal year to $1,219,750, or 14.9% of net sales, for the first quarter
of the current fiscal year. The increase was in part the result of continued
consolidation efforts by the Company in the accounting and administrative areas.
The Company expects to reduce administrative expense as the planned
consolidations continue.
Research and Development. During the period ended June 30, 1999 the
Company did not incur any research and development expense. Total research and
development expense was $51,750, or 1.0% of net sales, in the quarter ended June
30, 1998. Research and development is primarily concerned with upgrading current
proprietary software modules, including the efforts to meet Year 2000
compliance. The Company does not expect to incur any research and development
expense during the remainder of the fiscal year.
Operating Loss. The operating loss for the period was $44,058 compared
to an operating loss of $179,280 for the prior year's first quarter. The
operating loss improvement was the result of the increased sales offset by the
increased cost of sales , a result in the change in sales mix to higher costing
sales of third party products and the decrease in the sale of higher margin
services.
Interest and Other Income. Interest expense for the quarter was $69,847
which was paid on the current lines of credit, short term and long term
borrowings. The Company incurred approximately $80,845 in interest expenses
during the first quarter of the previous fiscal year.
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Net Loss. The net loss for the quarter ended June 30, 1999 was
approximately $113,655, or $.024 per share, versus a loss for the same period of
the prior fiscal year of approximately $274,606, or $.07 per share. The
improvement in net operating loss was the result of increased sales.
Income Taxes. The Company had no income tax expense for the first
quarter of fiscal 2000 and 1999. As of March 31, 1999, the Company had Federal
net operating loss carryforwards of approximately $11,200,000. The utilization
of net operating loss carryforwards will be limited as determined pursuant to
applicable provisions of the Internal Revenue Code and Treasury regulations
thereunder.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources. At June 30, 1999 the Company had a
working capital deficit of approximately $432,840 versus a deficit of
approximately $1,299,000 at March 31, 1999. The cash balance at June 30, 1999
was approximately $604,000, $300,000 of which was restricted as security for the
Company's line of credit.
Cash used by operations during the period ended June 30, 1999 was
approximately $688,537. Cash generated by operations during the same three month
period of the previous fiscal year totaled approximately $402,444. Cash used in
investing activities was approximately $48,081 at June 30, 1999 and
approximately $67,087 at June 30, 1998. Cash provided by financing activities
for the quarter ended June 30, 1999 totaled approximately $912,569 the result of
additional advances from the Companies line of credit. Cash used by financing
activities totaled approximately $489,583 for the three months ended June 30,
1998.
The Company has not integrated the sale of its proprietary software
into its subsidiaries and has not generated the increase in professional service
revenue it had anticipated and has therefore not generated the higher margins
that it had expected. The result is that historically the Company has been
unable to generate sufficient internal cash flows to support operations, and has
been dependent upon capital reserves and outside capital sources to supplement
cash flow. New equity investments, lines of credit and other borrowings, and
credit granted by its suppliers have enabled the Company to sustain operations
over the past several years. In August 1998, the Company had failed to meet the
"continued listing criteria" established by NASDAQ and the Company's Securities
were delisted from the NASDAQ Small Cap Market. The subsequent lack of liquidity
in the Company's securities has materially affected the Company's ability to
attract equity capital. Additionally, the lack of capital resources has
precluded the Company from effectively executing its strategic business plan.
The ability to raise capital and maintain credit sources is critical to the
continued viability of the Company.
During July 1999, the Company entered into a Stock Purchase and Merger
Agreement ("SPMA") with Sunburst Acquisitions IV, Inc., a Colorado corporation
("Sunburst"). The terms of the SPMA require that Sunburst purchase up to
5,280,763 shares of common stock of the Company for $3,000,000 pursuant to a
Regulation D Exemption under the United States Securities Act of 1933, as
amended. The investment by Sunburst is to be staged in two parts. The first
stage ("Tranche 1") purchases 3,459,972 shares at $0.2890 per share, for a total
of $1,000,000. The Company received the initial $1 million during August 1999.
The second stage ("Tranche 2") purchases up to 1,820,791 shares at $1.0984 per
share, for a total of $2,000,000. The Company shall use the proceeds from
Tranche 1 primarily as working capital. The proceeds from Tranche 2 are intended
to be used by the Company to facilitate the acquisition of another
(unaffiliated) company (the "Tranche 2 Acquisition"), and funded essentially
simultaneously with the closing of the Tranche 2 Acquisition.
Subject to shareholder approval, on the earlier of the closing of the
Tranche 2 Acquisition or September 30, 1999, it is intended that the Company
initiate the process to be merged with and into Sunburst or a subsidiary of
Sunburst organized for that purpose. As a condition to closing of the merger,
Sunburst is obligated to have a binding commitment from other investors,
satisfactory to the Company in form and substance, to purchase from Sunburst or
the surviving entity 890,287 shares of common stock at $2.246 per share, for a
total of $2,000,000
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("Tranche 3"). The proceeds from this financing are also intended to facilitate
an additional acquisition(s). After the merger, the shareholders of the Company
as of March 31, 1999, without dilution for existing warrants, options or other
such derivatives, would hold no less than 47.15% of the common stock of Sunburst
or the surviving entity. All outstanding warrants and options to acquire Company
stock that are not exercised prior to the merger will be automatically converted
into an option or right to purchase a like number of shares from Sunburst or the
surviving entity. Upon completion of the merger, the carrying value of the
Company's assets may be revised to reflect purchase accounting.
The three investment stages in the SPMA could potentially provide the
Company with the equivalent of a $5,000,000 capital infusion. Upon the merger,
Prologic shareholders, including those holding exercisable derivatives, would
retain approximately 50% of the merged entities. The potential acquisitions,
which are conditions to closing the future financing, will be consistent with
the Company's strategic business plan. With the capital resources available to
properly manage them, the acquisition of two or more profitable companies should
significantly expand the Company's revenues and enhance earnings. The resulting
increase in internally generated cash flows should greatly reduce the Company's
dependence upon outside capital sources. Additionally, the Company would expect
to be the beneficiary of, through the acquisitions, qualified executive
management, technical, and sales personnel, as well as new product and service
offerings. The Company believes that the SPMA can be the catalyst that will
provide its shareholders and investors the opportunity to participate in liquid
securities, trading in an orderly market.
In the future, the Company may require additional equity, working
capital and/or debt financing to maintain current operations as well as achieve
future plans for expansion. No assurance can be given of the Company's ability
to obtain such financing on favorable terms, if at all. If the Company is unable
to obtain additional financing, its ability to meet current and future plans for
expansion could be materially adversely affected.
During fiscal 1998, the Company signed a financing agreement with Coast
Business Credit for a line of credit in an amount of the lower of $5,000,000 or
the sum of 85% of eligible accounts receivable, restricted cash (see Note 5 of
the Consolidated Financial Statements) and equipment loans (maximum of
$250,000). This new facility is designed to provide working capital to support
the Company's sales growth for both subsidiaries. Among other things the
agreement required that the Company maintain a combined net worth at its BASIS
and GRSI subsidiaries of at least $1,000,000. The Company received a waiver for
non-compliance with this requirement at March 31, 1998 and modified the
agreement in July 1998 to a combined net worth requirement of $750,000 for both
subsidiaries. The Company was in compliance at June 30, 1999. The total amount
of the line of credit outstanding at June 30, 1999 was approximately $2,172,045.
During fiscal 1997, the Company borrowed approximately $100,000 at a
rate of 8%, which was scheduled to become due on June 30, 1997. During July
1997, the note holder agreed to extend maturity on a month-to-month basis. As a
result of the extension, the Company issues 10,000 restricted common shares per
month to the note holder in consideration for the term of the extension. As of
June 30, 1999 the note was still outstanding.
In addition, during fiscal 1997 the Company borrowed $820,000 in a
private offering of 10% Subordinated Convertible Notes due December 31, 1999.
Prior to September 30, 1997, with the exception of one $100,000 note holder, the
Company renegotiated the conversion terms with the note holders of the remaining
$720,000. The revised terms assign a fixed conversion price of $3.75 per share.
In addition, the note holders have been granted warrants to purchase a total of
252,000 shares of the Company's common stock at a price of $2.00 per share. The
warrants will expire on December 31, 2001. During December 1997, one $100,000
note holder exchanged the debt for unregistered common stock of the Company. The
common stock was exchanged at a price of $.625 per share for a total of 160,000
shares. In fiscal 1999, the remainder of the note holders representing $720,000
converted to 72,000 shares of unregistered convertible preferred stock at a
conversion rate of $3.75 per share and received warrants to purchase an
additional 72,000 shares of unregistered common stock at a price of $1.00 per
share. These warrants expire March 31, 2001.
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The Company borrowed $240,000 in short term notes collateralized by its
computer equipment and office furnishings during fiscal 1997. Interest on these
notes is paid monthly at a rate of 2%. During fiscal 1998, an additional
$125,000 was borrowed against this equipment. Of the $365,000, holders of notes
totaling $205,000 agreed to extend through December 31, 1997; the remaining
$160,000 exchanged their debt for unregistered common stock of the Company at a
price of $0.625 per share, for a total of 256,000 shares.
During fiscal 1999, holders of $45,000 of the above notes were paid
off; holders of notes totaling $130,000 extended through July 31, 1998; a
$20,000 note holder agreed to extend on a month-to-month basis with 30 days
notice of payment on demand; and a $10,000 note holder exchanged the debt for
common stock at a rate of $0.625 per share. As of June 30, 1999, $150,000 of
principal remained outstanding on these notes extended on a month to month
basis.
During the first quarter of fiscal 2000, the Company purchased
approximately $48,081 in capital equipment and software.
Year 2000 Issue. The Company's proprietary manufacturing software
product line was Year 2000 compliant in July 1998 and was released during the
quarter ending September 30, 1998. The Company's internal development tools are
Year 2000 compliant. The proprietary wholesale distribution software product
line was Year 2000 compliant as of April 1999 and was released in May 1999.
Internally, the Company uses its distribution software accounting package and
does not foresee any problems in converting to the Year 2000 compliant version
of its software. The Company does not foresee any problems in working with
third-party companies or clients because of the Year 2000 issue. Furthermore,
the Company does not believe that clients utilizing its updated software
products will have any problems with their vendors because of the Year 2000
issue due to the use of the Company's software products. Costs relating to the
development of the Year 2000 issue have been included in the research and
development expenses over the fiscal year ended March 31, 1999.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This form 10-QSB may contain forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand and market acceptance risks, the presence of
competitors with greater financial resources, product development and
commercialization risks, costs associated with the integration and
administration of acquired operations, capacity and supply constraints or
difficulties, the results of financing efforts and other risks detailed from
time to time in the Company's Securities and Exchange Commission filings,
including the Company's 1999 Form 10-KSB.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date of this filing, neither the Company nor its subsidiaries
are a party to any legal proceedings, the outcome of which, in management's
opinion, would have a material adverse effect on the Company's operations or
financial position.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 10QSB
A. Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Document Page
-------------- -------- ----
<S> <C> <C>
11.1 Schedule of Computation of Net Loss Per Share
27 Financial Data Schedule
10.17 Heim Employment Agreement
</TABLE>
B. Reports:
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
12
<PAGE> 13
In Accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROLOGIC MANAGEMENT SYSTEMS, INC.
DATED: August 13, 1999 By: /s/ James M. Heim
----------------------------------------
James M. Heim
President and Chief Executive Officer
By: /s/ William E. Wallin
----------------------------------------
William E. Wallin,
Vice President, Chief Financial Officer,
Secretary and Treasurer (Principal
Financial and Accounting Officer)
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<PAGE> 14
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
11 Schedule of Computation of Net Loss Per Share
27 Financial Data Schedule
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 27th day of May, 1999, by
and between PROLOGIC MANAGEMENT SYSTEMS, INC., an Arizona corporation (the
"Company"), and James M. Heim, an individual residing in Tucson, Arizona (the
"Executive").
R E C I T A L S :
WHEREAS, the Company desires that the Executive be employed by the
Company in order to ensure that the services of Executive shall be available to
the Company on a long term basis;
WHEREAS, Executive desires to be employed by the Company on the
following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
A G R E E M E N T :
1. The Employment Period.
(a) Initial Period. The "Employment Period," shall be April 1,
1999 to March 31, 2002 ("Original Employment Period"), unless terminated or
renewed pursuant to the terms of this Agreement.
(b) Renewal. Subject to Section 4, upon written notice to the
Company of Executive's interest in continuing his employment with the Company no
less than ninety (90) days prior to the expiration of the Employment Period, the
Company may elect to renew the Employment Period for one additional one (1) year
period on substantially the same terms as the original Employment Period,
provided, however, that at the option of the Executive, in place of the salary
and options granted under Section 3 and the severance benefits provided in
Section 5, any renewal agreement will contain salary provisions, option grants
and severance benefits which are similar in terms and conditions to those
offered in general to the principal executive officers of the Company, its
subsidiaries and affiliates.
(c) In the event that the Company does not exercise its option
to renew the contract upon notice provided to Company in accordance with Section
1(b), Executive will receive a termination payment equal to six (6) months
salary, to be paid on a monthly basis in accordance with the Company's policies
as described in Section 3(a)(i).
<PAGE> 2
2. Employment and Duties.
(a) Employment. The Company hereby employs Executive for the
Employment Period to perform such duties for the Company, its subsidiaries and
affiliates as may be reasonably specified from time to time by the Company's
Board of Directors or the representative designated by the Board of Directors
(the "Board"). Executive hereby accepts employment with the Company as President
and Chief Executive Officer (or an alternative executive officer position if
there is a restructuring of the Company, or their subsidiaries or affiliates),
reporting directly to the Board of the Company. It is understood that Executive
will use best efforts to perform his duties in the manner directed by the Board
and in compliance with all federal, state and local laws, ordinances and
regulations.
(b) Time Devoted to Duties. Executive shall devote
substantially all of his non-personal time and efforts to the business of the
Company, its subsidiaries and affiliates, the amount of such time to be
sufficient to permit him to diligently and faithfully to serve and endeavor to
further the Company's interests to the best of his ability. Executive shall not,
during the Employment Period, (i) accept any other employment, or (ii) engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary gain) that is or may be competitive with, or that might place him
in a competing position to that of the Company or its subsidiaries or
affiliates, provided, however, that an investment of less than one percent (1%)
in a public company which competes with the Company but with which Executive has
no other involvement will not violate the terms hereof. The Executive hereby
represents that his employment hereunder and compliance by him of the terms and
conditions of this Agreement will not conflict with or result in the breach of
any agreement by which he may be bound.
3. Compensation.
(a) Monetary Remuneration and Benefits. During the Employment
Period, the Company shall pay to Executive for all services rendered by him in
any capacity:
(i) Salary. An annual salary of One Hundred Sixty
Thousand Dollars ($160,000), payable pursuant to the procedures
regularly established, and as they may be amended, by the Company
during the course of this Agreement. This rate may be subject to
increases from time to time in the sole and exclusive discretion of the
Board.
(ii) Acquisition Bonus. A bonus based on the value of
all acquisitions completed during the term of this agreement which
shall be one quarter of one percent (0.25%) of the purchase price of
each acquisition payable over six months following each acquisition. At
the option of the Executive, up to fifty percent (50%) of this bonus
may be paid in common stock of the Company, wherein, for valuation
purposes herein, the price of the stock would be set by the Board of
Directors.
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<PAGE> 3
(iii) Consolidated Earnings Bonus. A bonus based on
the increase of "Consolidated Earnings before Taxes, Depreciation and
Amortization," (EBTDA) which shall be an amount equal to two percent
(2%) of the annual increase in the Consolidated EBTDA earnings of the
Company for each fiscal years ending March 31, 2000, March 31, 2001 and
March 31, 2002 ("Consolidated Earnings Bonus"). These annual earnings
calculations will be subject to adjustment for acquisitions that were
made during each fiscal year on a prorated basis. For example, if an
acquisition with an EBTDA of $2.6M (based on final purchase price
valuation purposes) completed at the end of the second quarter, then
for purposed of calculating performance under this section, $1.3M would
be added to the prior year's fiscal Consolidated EBTDA earnings. The
calculations regarding EBTDA shall be in conformance with general
accepted accounting standards as specified by the AICPA.
(iv) Company Bonus Plan. In the event that the Board
of Directors of the Company shall adopt a company-wide bonus plan for
which all executive-level employees shall be eligible (the "Company
Plan"), then Executive shall be entitled to make an election to
participate in the Company Plan. Such plan will become effective only
at the commencement of Company's fiscal year, and Executive shall have
the opportunity to make his election to participate at that point in
time. If Executive elects to participate in the Company Plan, Executive
shall irrevocably forfeit all of his future rights under the
Consolidated Earnings Bonus as specified in Section 3 (a) (iii) above,
and shall be entitled to participate only in the Company Plan from that
point forward.
All bonuses set forth in Section 3(a) (iii) shall be paid annually,
within ninety (90) days after the completion of each annual period.
However, upon review and approval by the Compensation Committee
appointed by the Board of Directors, Executive shall be entitled to
receive a quarterly draw against his Consolidated Earnings Bonus in an
amount equal to fifty percent (50%) of such bonus earned during the
fiscal quarter. Such quarterly draws shall be paid within thirty (30)
days after the close of the quarter. The remainder of the Consolidated
Earnings Bonus shall be paid annually pursuant to the terms contained
herein. In the event that the quarterly draws paid to Executive should
exceed the total of the Consolidated Earnings Bonus earned for the
annual period, then any such excess payment shall be deducted from the
Executive's salary.
(b) Upon execution of this Agreement, Executive shall be
granted an option to purchase, for a period of five years from the date of
grant, an aggregate total of two hundred and fifty thousand (250,000) shares of
Prologic Common Stock (the "Options") at $.50 per share, in the form of a
standard Option Agreement made in accordance with, and subject to, the Prologic
1994 Stock Option Plan or its successor plan (the "Plan"). The Options shall
become exercisable as follows:
(i) Consolidated Earnings Incentive. The Options
shall become exercisable at the rate of 20,000 shares per $1,000,000 of
the consolidated EBTDA earnings as described herein on a cumulative
basis starting April 1, 1999 through the term of this agreement; and
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<PAGE> 4
(ii) Acquisition Incentive. The Options shall become
exercisable at the rate of 10,000 shares per each successive $5,000,000
of acquisition value completed during the term of this agreement; and
(iii) Time Incentive. The Options shall become
exercisable at the rate of 25,000 shares per year of employment by
Executive completed during the term of this agreement beginning with
the completion of the first year of employment effective on March 31,
2000.
(iv) Limitation. The total number of shares
exercisable under option under this agreement shall be limited to the
total as specified in Section 3 (b) above.
(v) The Company will diligently endeavor to comply
with all applicable securities laws in connection with any Options to
be granted in connection with the Plan and before any shares are issued
pursuant to Options. Without limiting the generality of the foregoing,
the Company may require from the optionee such investment
representation or such agreement, if any, as counsel for the Company
may consider necessary or advisable in order to comply with the
Securities Act of 1933 as then in effect ("Securities Act"), and may
require that the optionee agree that any sale of the shares will be
made only in such manner as is permitted by the Board. The committee
supervising the Plan may, in its sole discretion, cause the Shares
underlying the Options to be registered under the Securities Act, and
the committee will give positive consideration to effecting such
registration. Optionee shall take any action reasonably requested by
the Company in connection with registration or qualification of the
Shares under federal or state securities laws.
(vi) In place of the standard Option Agreement as
described at the beginning of this Section, the Executive may elect to
purchase the total amount of shares eligible (250,000 shares) under the
Option Agreement on or before June 30, 1999. If the Executive makes
such election, the shares issued shall be subject to a repurchase
provision of the Company based on the amount of shares that have not
been earned under Sections 3 (b) (i), (ii) and (iii). The amount to be
paid by the Company under the repurchase provision shall be paid on the
earlier of ninety days of the termination of employment of Executive
under this agreement or June 30, 2002. The amount due shall be $0.50
per share plus interest on the original stock purchase by the Executive
at a rate equivalent to the increase in the Consumer Price Index for
Greater Los Angeles Area for the period of time beginning with the
purchase by the Executive and ending with the repurchase by the
Company.
(c) Vacation. During the Employment Period, Executive will be
given four (4) weeks vacation with full pay and benefits each year, exclusive of
the Company holidays, pursuant to the policies regularly established and as they
may be amended by the Company; provided, however, that Executive will use his
best efforts to ensure that such vacation does not unduly interfere with the
operation and performance of the business of the Company, its subsidiaries and
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<PAGE> 5
affiliates. The Company acknowledges that Executive also has accumulated
vacation time as of March 31, 1999 of eight weeks as an employee of the Company
which he will not lose during the Employment Period and without prejudice to
accruing new vacation time during the term of this agreement.
(d) Expenses. During the Employment Period, the Company agrees
to reimburse Executive for reasonable travel and other business expenses
incurred by Executive in the performance of his duties hereunder, in accordance
with the Company's reimbursement policies as they may be amended from time to
time during the Employment Period, including expenses related to company
provided transportation. The Parties agree that company will provide
transportation during the term of this agreement with a maximum lease payment of
$850.00 per month.
(e) Office and Staff. The Company will provide Executive with
appropriate facilities and support services as may reasonably be required by the
Executive for the proper discharge of his duties hereunder.
(f) Participation in Plans. As he becomes eligible and
continues to be eligible therefor, the Company shall provide the Executive with
the right to participate in such plans or programs generally made available by
the Company to or for the benefit of, its executives.
(g) Other Executive Benefits. As he becomes eligible and
continues to be eligible therefor, the Company will provide such employee
benefits as are provided by the Company to its other principal executives
hereunder, including insurance coverage, if any, on any policy for the Company's
principal executive officers and directors, and when applicable, coverage as
reasonably available to Executive as an Executive Officer of the Company.
4. Termination of Employment.
(a) By Death. The Company shall pay to Executive's
beneficiaries or estate, as appropriate, the compensation to which he is
entitled pursuant to Section 3 (a) through the end of the month in which death
of the Executive occurs. During the term of the agreement, the Company will
provide a term life insurance policy of $500,000 on the Executive with
beneficiaries to be specified by the Executive. Thereafter, the Company's
obligations hereunder shall terminate. Nothing in this Section shall affect any
entitlement of Executive's heirs to the benefits of any life insurance plan
purchased by the Company.
(b) By Disability. If, in the sole opinion of the Board,
Executive shall be prevented from properly performing his duties hereunder by
reason of any physical or mental incapacity for a period of more than ninety
(90) days in the aggregate or sixty (60) consecutive days in any twelve-month
period (the "Disability Period"), then, to the extent permitted by law, the
Employment Period shall terminate on, and the compensation to which Executive is
entitled pursuant to Section 3(a) shall be paid up through, the last day of the
month of the Disability Period (of ninety (90) days or sixty (60) days, as
applicable) and the severance payments to which he is entitled pursuant to
Section 5(a), and thereafter the Company's obligations hereunder shall
5
<PAGE> 6
terminate. Nothing in this Section shall affect Executive's rights under any
disability insurance plan in which he is a participant.
(c) By the Company for Cause. The Company may terminate,
without liability and without prejudice to any other remedy to which Employer
may be entitled either at law, in equity or under this Agreement, the Employment
Period for Cause (as defined below) at any time and without advance notice. The
Company shall pay Executive the compensation to which he is entitled pursuant to
Section 3 including vacation and other benefits through the end of the day upon
which notice is received and that which he is entitled to under Section 5 (b),
and thereafter the Company's obligations hereunder this Agreement shall
terminate. Termination shall be for "Cause" if:
(i) Executive acts or fails to act and such act or
failure to act is, in the reasonable opinion of the Board, in bad faith
and to the material detriment of the Company or its subsidiaries or
affiliates;
(ii) Executive refuses or fails to act in accordance
with any direction or order of the Board if such failures or refusals,
individually or in the aggregate, are, in the reasonable opinion of the
Board, material to Executive's performance and such performance does
not, in the good faith and reasonable judgment of the Executive, result
in or violate any applicable federal, state or local law, ordinances or
regulations;
(iii) Executive commits any act of dishonesty or a
felony affecting the Company, its subsidiaries or affiliates and such
act of dishonesty or felony adversely affects the Company, its
subsidiaries or affiliates or their or its reputation, business or
business relationships in a material manner;
(iv) Executive has a chemical or alcohol dependency,
which interferes with the performance of the Executive's duties and
responsibilities under this Agreement;
(v) Executive commits gross misconduct or neglect,
or, in the reasonable opinion of the Board, demonstrates gross
incompetence in the management of the affairs of the Company or its
subsidiaries or affiliates;
(vi) Executive is convicted of a felony or any crime
involving moral turpitude, fraud or misrepresentation; or
(vii) Executive materially breaches any term of this
Agreement, if such breach is not cured within ten (10) days after
written notice thereof is provided by the Company to the Executive.
(d) By the Company without Cause. The Employment Period may be
terminated without Cause by the Company only upon the written consent of the
Executive. In the event the Company terminates the Employment Period without
Cause and without the written consent of the Executive, the Company shall
provide thirty (30) days advance written notice to
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<PAGE> 7
Executive and shall pay to Executive the severance payment to which he is
entitled to pursuant to Section 5(a), and thereafter the Company's obligations
hereunder shall terminate.
(e) By Executive for Good Reason. The Executive may terminate
his employment hereunder for "Good Reason" (as described below) upon thirty (30)
days written notice. The Company shall pay to Executive the severance payment to
which he is entitled to pursuant to Section 5(a), and thereafter the Executive's
and the Company's obligations hereunder shall terminate. Termination by
Executive shall be for "Good Reason" if:
(i) The duties and responsibilities and status
assigned to Executive are not reasonably consistent with the position
and responsibilities originally assumed by Executive under this
Agreement or there is a material adverse change (which is under the
reasonable control of the Company) in the work environment as it
applies to Executive, in each case having a material negative effect on
Executive's employment position; or
(ii) The Company, without the Executive's consent,
requires the relocation of the offices at which Executive is
principally employed on the date hereof to a location more than 50
miles from such location or requires Executive to be based other than
the Company's offices at such location, except for business travel by
Executive as shall be required only as reasonably necessary to permit
Executive to properly perform his duties hereunder; and
(iii) The Company fails to cure within thirty (30)
days of the Company's receipt of notice from Executive of Company's
failure to perform its material obligations to Executive under this
Agreement.
(f) By Executive without Good Reason. The Employment Period
may be terminated without Good Reason by the Executive only upon the written
consent of the Company. In the event the Executive terminates the Employment
Period without Good Reason and without the written consent of the Company, the
Executive shall provide thirty (30) days advance written notice to the Company
and the Company shall have the rights set forth in Section 5(b). Thereafter,
Executive's obligations hereunder, except for those set forth in Section 6,
shall terminate.
(g) By Company and Executive upon Mutual Agreement. The
Employment Period may be terminated upon the written consent of both the Company
and the Executive on terms to be mutually agreed upon. Thereafter, the Company's
and Executive's obligations hereunder shall terminate.
5. Benefits Upon Termination of Employment Period.
(a) Termination of Employment by Disability, by the Company
without Cause or by Executive for Good Reason. In the event of termination prior
to the completion of the Original Employment Period by the Company as a result
of Executive's Disability or, by the Company without Cause, or by the Executive
for Good Reason (as defined in Section 4(e)),
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<PAGE> 8
Executive shall be entitled to all compensation and accrued benefits earned by
him, including bonuses, prior to the date of termination as provided for in this
Agreement, pro rata up to and including that date, together with an amount equal
to the greater of twelve (12) months compensation or the balance of the
compensation remaining in the Original Employment Period (the "Severance
Period"), as full and complete severance compensation. Compensation as used in
this section is to be based on estimated compensation based on benefits and
salary as well as Consolidated Earnings Bonuses due under Sections 3 (a) (iii)
or (iv) during the Severance Period as well as any bonuses due under Section 3
(a) (ii) based on any acquisition which the Executive was in contact with during
his employment that closes within six months of the date of termination
Thereafter, the Company's obligations to the Executive shall terminate.
Furthermore, to the extent permitted by applicable laws and the Plan, all stock
options granted to Executive in connection with this Agreement shall become
immediately and fully exercisable.
(b) Termination of Employment by Company for Cause or by
Executive for Other Than Good Reason. In the event of termination prior to the
completion of the Original Employment Period by the Company for Cause or by
Executive other than for Good Reason, the Company shall pay to the Executive the
compensation set forth in Section 3 earned and accrued by him prior to the date
of termination. Upon such payment, the Company's obligations to the Executive
shall terminate. The Executive shall not be entitled to any other compensation
or other severance payment, including those set forth in Section 1(b).
Thereafter, the Executive's obligations to the Company, except those set forth
in Section 6, shall terminate. Furthermore, to the extent permitted by
applicable laws and the Plan, all stock options granted to Executive in
connection with this Agreement, but not yet exercisable on a pro rata basis at
the date of termination, shall become null and void.
(c) Excess Payments. Notwithstanding anything contained in
this Section or any other section of this Agreement to the contrary, if any
compensation or benefit payment shall be considered in the aggregate to be an
"excess parachute payment" as that term is defined in Section 280G of the
Internal Revenue Code of 1986, as amended, all such compensation and benefits
shall be reduced and, or extended over a period of time, upon the written
request of the Executive, to the extent required to prevent such compensation
and benefits, in the aggregate, from being considered an "excess parachute
payment".
6. Preservation of Business.
(a) General. During the Employment Period and subject to the
provisions of Section 2(b), Executive will use his best efforts to advance the
business and organization of the Company, its subsidiaries and affiliates, the
services of present and future employees and to advance its business relations
with its joint venture partners, suppliers, distributors, customers and others.
(b) Uniqueness of Services; Interference with Business;
Competitive Activities. The parties agree that the services that Executive will
perform hereunder are special, unique and extraordinary in nature and that, if
the Executive breaches the terms of this Agreement, it may reduce the value of
the Company and the Company may be entitled in appropriate instances (and
8
<PAGE> 9
in addition to any remedy that it may have at law) to any equitable relief,
including injunctive relief, that may rightfully be awarded under applicable
law. Executive agrees that during the Employment Period and for one year after
termination thereof (the "Restricted Period"), he shall not, for himself or any
third party, directly or indirectly (i) divert or attempt to divert from the
Company or its subsidiaries or affiliates any strategic business opportunities
in terms of acquisitions and, or mergers in which it, the Company, its
subsidiaries or affiliates are engaged, or have the reasonable expectation of
engaging in, including, without limitation, the solicitation of or interference
with any of its potential acquisitions, business partners, or prospective merger
candidates within the United States (the "Restricted Area"), or (ii) employ,
solicit for employment, or recommend for employment during the Restricted Period
any person employed by the Company, or by any of its subsidiaries or affiliates,
during the period of such person's employment and for a period of six (6) months
after such employee's termination. Executive expressly acknowledges that the
subject matter, territorial and time restrictions contained in this paragraph
are reasonable and are properly required for the adequate protection of the
Company's property interests.
(c) Consequences of Termination by Company without Cause or
Termination by Executive with Good Reason. The covenants contained in Section
6(b) will terminate immediately if the Company terminates this Agreement without
cause or Executive terminates this Agreement with Good Reason, provided that,
during the period that the Executive continues to receive payment of severance
benefits as provided in Section 5 hereof, Executive will not compete with the
Company or their affiliates, or contact or attempt to contact the Company's or
their affiliates', employees or customers (except with respect to matters
unrelated to his services hereunder); shall not utilize the property of the
Company or it's affiliates, including intellectual property, and shall under no
circumstances act for, with or on behalf of, as an employee or otherwise, a
competitor where he would be involved in direct competition with the Company, or
it's affiliates.
(d) Confidentiality and Non-Disclosure. During the course of
employment, Executive may become aware of certain methods, practices, procedures
and other proprietary information and inventions with which the Company conduct
their business, including but not limited to, trade secrets, confidential
information, knowledge, inventions, data or other information related to the
Company relating to products, processes, know-how, designs, customer lists,
business plan, marketing plans and strategies, and pricing strategies or any
subject matter pertaining to any business of the Company, or any of their
clients, licensees or affiliates, all of which the Company, and Executive agree
are proprietary information and as such are trade secrets and the property of
the Company, including any Confidential Property created by Executive during the
term of his employment and other proprietary information and inventions (herein
"Confidential Property"). Executive agrees to keep confidential, except as the
Company may otherwise consent in writing in advance, and not to disclose, or
make any use of except for the benefit of the Company, at any time either during
or subsequent to his employment, any Confidential Property which Executive may
produce, obtain, learn or otherwise acquire. Executive further agrees not to use
or encourage the use by others, including other employees of the Company, of any
Confidential Property. In the event of Executive's termination of employment
with the Company for any reason whatsoever, Executive will promptly surrender
and
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<PAGE> 10
deliver to the Company all property of the Company including any Confidential
Property and records, materials, equipment, drawings and data of any nature
pertaining to any Confidential Property of the Company. Executive will not take
any written description containing or pertaining to any Confidential Property of
the Company.
7. Dispute Resolution; Remedies.
(a) Mediation. In the event of any controversy or claim
arising out of or related to this Agreement, or the breach thereof, which has
not been settled through informal discussion and negotiation, the parties agree
first to try in good faith to settle the dispute by mediation administered by
the American Arbitration Association (AAA) under its Employment Mediation Rules,
and held in the Las Vegas, Nevada Offices of the AAA, or if not available, the
Phoenix Regional Offices of the AAA, subject to the laws of the State of
Arizona, before resorting to arbitration, provided, however, that any
controversy or claims arising out of or related to Section 6 shall not be
governed by this Section.
(b) Arbitration. In the event of any controversy or claim
arising out of or related to this Agreement, or the breach thereof, which has
not been settled through negotiation or the mediation procedures provided for in
the previous paragraph, such controversy or claim shall be settled by binding
arbitration administered by the American Arbitration Association (AAA) under its
National Rules for the Resolution of Employment Disputes and held in the Las
Vegas, Nevada Offices of the AAA, or if not available, the Phoenix Regional
Offices of the AAA, subject to the laws of the state of Arizona, and judgment on
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof, provided, however, that any controversy or claims arising
out of or related to Section 6 shall not be governed by this Section.
8. Miscellaneous.
(a) Entire Agreement; Amendment. This Agreement constitutes
the entire agreement between the parties with respect to the matters covered
herein, and may not be modified, amended or terminated except by a written
instrument executed by the parties hereto. All other agreements between the
parties pertaining to the employment or remuneration of Executive not
specifically contemplated hereby or incorporated herein are terminated and shall
be of no further force or effect.
(b) Assignment. Executive agrees that he will not assign,
sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Executive's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation by the Executive
shall be null and void. Executive hereby consents to the assignment of this
Agreement to any of the Company's direct or indirect subsidiaries or any of
their affiliates or any of their successors in interest, provided that such
assignment shall not materially and adversely effect the employment and duties
of Executive hereunder. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other corporation, or
the sale by the Company of all or substantially all of its properties or assets,
or the assignment by the Company of this Agreement
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<PAGE> 11
and the performance of its obligations hereunder to any of their direct or
indirect subsidiaries or any of their affiliates or any of their successors in
interest. Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective heirs, legal
representatives, successors, and permitted assigns, and shall not benefit any
person or entity other than those enumerated above.
(c) No Waiver. No waiver of any breach or default hereunder
shall be considered valid unless in writing and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature. The
failure of any party to insist upon strict adherence to any term of this
Agreement on any occasion shall not operate or be construed as a waiver of the
right to insist upon strict adherence to that term or any other term of this
Agreement on that or any other occasion.
(d) Enforcement; Severability. In the event that any term or
provision of this Agreement shall be deemed by a court of competent jurisdiction
to be overly broad in scope, duration or area of applicability, the court
considering the same shall have the power and is hereby authorized and directed
to modify such term or provision to limit such scope, duration or area, or all
of them, so that such term or provision is no longer overly broad and to enforce
the same as so limited. Subject to the foregoing sentence, in the event that any
provision of this Agreement shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall attach only to such provision
and shall not affect or render invalid or unenforceable any other provision of
this Agreement. The Executive agrees that the provisions of Section 6 hereof
constitute independent and separable covenants which shall survive the
termination of the Employment Period.
(e) Notices. Any notice permitted or required hereunder shall
be in writing and shall be deemed to have been given on the date of delivery or,
if mailed by registered or certified mail, postage prepaid, on the date of
mailing:
If to Executive to:
James M. Heim
2030 East Speedway
Tucson, Arizona 85719
If to the Company to:
Prologic Management Systems, Inc.
2030 East Speedway Boulevard
Tucson, Arizona 85719
Either party may, by notice to the other, change his or its address for notice
hereunder.
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(f) Executive Acknowledgment. Executive acknowledges that (i)
he has consulted with or has had the opportunity to consult with independent
counsel of his own choice concerning this Agreement and has been advised to do
so by the Company, and (ii) he has read and understands the Agreement, is fully
aware of its legal effect, and has entered into it freely based on his own
judgment.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
(h) Headings. All headings appear in this Agreement for
convenience only and shall not be used in construing the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
PROLOGIC MANAGEMENT SYSTEMS, INC. EXECUTIVE
By: /s/ Richard E. Metz /s/ James M. Heim
--------------------------------- ---------------------
Its: Executive Vice President James M. Heim
12
<PAGE> 1
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Loss applicable to Common Stock (133,877) (274,608)
Weighted average number of common shares equivalent:
Common shares outstanding
Common equivalent shares representing shares issuable
upon exercise of stock options and warrants 4,721,349 3,676,054
Staff Accounting Bulletin No. 83 issuances and grants -- --
Shares used in per share computations 4,721,349 3,676,054
Net loss per common share applicable to Common Stock (0.03) (0.08)
</TABLE>
Primary and fully diluted calculations are identical.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 604,112
<SECURITIES> 0
<RECEIVABLES> 5,895,081
<ALLOWANCES> 245,688
<INVENTORY> 98,335
<CURRENT-ASSETS> 6,716,653
<PP&E> 1,585,342
<DEPRECIATION> 1,089,788
<TOTAL-ASSETS> 8,212,269
<CURRENT-LIABILITIES> 7,149,494
<BONDS> 0
0
619,883
<COMMON> 8,700,137
<OTHER-SE> (10,889,073)
<TOTAL-LIABILITY-AND-EQUITY> 8,212,269
<SALES> 6,313,701
<TOTAL-REVENUES> 8,194,508
<CGS> 5,451,216
<TOTAL-COSTS> 6,646,080
<OTHER-EXPENSES> 1,662,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,847
<INCOME-PRETAX> (133,877)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133,877)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
